A Generational Shift Away From Stocks?


The New York Times does an excellent job describing the retreat from stock trading that is now in its fourth year. Volume on the equities exchanges are half what they were before the financial crisis.

What's happened? It seems that stocks have gone out of fashion. Investors prefer the safety of bonds.

The Times portrays this as a reaction to the financial crisis. This is a hopeful narrative for those who want volume to return (the brokerages, the exchanges) because it holds out the possibility the confidence fairies could return to sprinkle pixie dust on stocks once more.

I suspect the turn against stocks involves more fundamental changes.

1. An aging population has put lots of investors into wealth-preservation mode.

2. Fears of inflation push investors out of stocks and into inflation-indexed bonds. Stocks never were a good inflation hedge, anyway.

3. The returns on stocks have been depressed for over a decade. It's hard to justify "long term" investing after a decade of withering bear markets and nearly flat returns.

4. The rise of strategies, such as high-frequency trading, that prey upon day traders and other nonprofessional investors, has convinced many that buying and selling stock is a losing game.

I'm not sure this is lamentable. The long run of equities has not necessarily served investors all that well. I am sure that it is unlikely to be reversed soon. This is the new normal for volume.

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